Rising Cost of Providing Health Care in America

Ten years ago, on July 30, 1965, President Johnson signed into law what is generally considered to be the most important welfare legislation of his administration—the amendments to the Social Security Act of 1935 providing for the Medicare and Medicaid health programs. In signing the bill, the President said, “No longer will older Americans be denied the healing miracle of modern medicine. No longer will illness crush and destroy the savings that they have so carefully put away over a lifetime so that they might enjoy dignity in their later years.”

It is generally acknowledged that the Medicare program has been largely successful in meeting the health care needs of the elderly. “Medicare has enabled old people without financial resources to get the health care they need,” said Dr. Rashi Fein, professor of health economics at Harvard, “and it has prevented financial catastrophe for the rest of the elderly and their children. These were its main goals.” However, the Medicare program has been accompanied by inflated health care costs. As these costs have gone up, gaps in Medicare benefit coverage have widened. “The increase in costs to the individual has created a situation which deters preventive medicine and stimulates the use of more expensive services,” said Lawrence Lane, legislative representative for the American Association of Retired Persons.

The history of Medicare and Medicaid should be viewed within the context of the U.S. health industry in general, which employs over four million people and continues to grow at a fast pace. National health expenditures, both public and private, were estimated to total $118.4 billion in fiscal year 1975 and account for 8.3 per cent of the Gross National Product. Comparable figures in 1960 were $25.9 billion and 5.2 per cent. An increase in federal financing of health programs has paralleled this rise in total national health expenditures. In the past 10 years, federal health expenditures have increased sixfold, as is shown in the following table: